Micron Technology (MU -0.22%) has been one of the leaders of this next phase of the artificial intelligence (AI) boom. Its high bandwidth memory chips, built to handle AI workloads, are essential components of AI infrastructure. After all, for AI computing to work, it needs quick access to data. That's where Micron comes in.
As one of just three major players in high bandwidth memory chips, Micron is one of the market leaders. And demand is so high right now, Micron cannot make chips fast enough. Micron long ago sold out of its high bandwidth memory chips for 2026, and now, according to reports, it is essentially sold out for all of 2027.
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This insatiable demand has given Micron pricing leverage, enabling it to charge higher prices and leading to surging revenue and earnings. Every quarter, it is hitting new records. In its fiscal Q3, Micron generated $41.5 billion in revenue, up 82% from Q2 and 357% year over year. Earnings soared 104% to $24.67 from Q2 and grew 1,368% year over year.
These are just staggering numbers that have translated into eye-popping returns. Micron stock is up 628% over the past 12 months and 245% year-to-date.
Micron is also a deep value play
Where does Micron go from here? Its forward price-to-earnings ratio, which projects earnings 12 months out, and its price/earnings-to-growth (PEG) ratio, which looks out five years, depict unyielding growth.
The forward P/E ratio is just 6 -- which puts it in deep value stock territory. In reality, it means that earnings growth is expected to be so strong that the rising stock price will seem muted by comparison.
Further out, the five-year PEG ratio is just 0.15, which is ridiculously low. Given that anything under 1 is considered a value relative to its long-term earnings growth expectations, a PEG ratio of just 0.15 is also in deep value territory.
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Key Data Points
Because the PEG ratio looks five years out, it suggests that analysts expect the memory chip boom to last for another five years. That roughly syncs with the expectations of many strategists and experts, who see the AI buildout boom lasting until 2029 or 2030. At that point, the necessary factories and infrastructure will be able to meet the demand for memory chips. When that happens, Micron's earnings growth will level off and stabilize, as supply will likely meet demand and Micron will lose some of its pricing power.
Where will Micron be a decade out?
It is impossible to know exactly what will happen over the next 10 years, because Micron is taking steps now to ensure its dominance for years to come, even beyond the boom years.
Specifically, it has been signing long-term five-year contracts with customers called strategic customer agreements (SCAs). In the last quarter, it signed 16 of them with tier 1 (major) clients, with more to come. It projects that the SCAs will generate more than $100 billion in revenue over the course of the contracts, as a floor.
Following the Q3 earnings call, some of those SCA clients were announced, including Ford Motor Company, General Motors, and several automotive industry suppliers. The SCAs were also signed with data center, consumer device, and industrial customers. On the earnings call, CEO Sanjay Mehrotra said there were four very large SCA customers, including data center customers, which likely means some of the major hyperscalers.
"These SCAs accelerate the transformation of our business model. Enhance partnership in technology and innovation, and provide customers with contracted supply assurance," Mehrotra said on the Q3 call with analysts.
When these contracts are all executed, they will account for at least half of the company's revenue.
Beyond five years, it is difficult to predict where Micron will be. Given what is known about the company and its plans, I would expect its growth rates to moderate, yet it should remain an essential cog in the AI economy, which should continue to grow and flourish. As one of just a handful of major players within the memory chip universe, I would expect Micron to be a solid, mature grower. That bodes well for the long-term investing thesis of this stock.
